Kaz Minerals PLC

KAZ Minerals Plc (LON: KAZ) is the UK’s largest industrial metal and mining company by market capitalisation and also a constituent of the UK's mid-cap FTSE 250 index. The company is focussed on developing new copper mining projects in Russia and Kazakhstan.

On 20^th February 2020, the company will announce its 2019 full-year results.

Production Update (as on 30^th January 2020)
The company announced the production report for twelve months and the fourth quarter ended 31^st December 2019. For the twelve months of 2019, the copper production surged by 6% to 311.4 thousand tonnes as compared with the corresponding period of the last year. The copper production is also above from the full-year guidance of 300 thousand tonnes. Bozshakol and Aktogay copper production for the twelve months of 2019 increased from the same period last year, but East Region & Bozymchak copper production decreased in the current period. While the copper production for the fourth quarter of 2019 increased to 80.9 thousand tonnes as compared with a similar period in the last year. In Bozshakol, the gold production increased to 144.8 koz in 2019 against the previous year (FY 2018: 127.8 koz), driven by the sustained high grades. In 2019, silver and gold production both exceeded full-year guidance. Zinc in concentrate production of 38.3 thousand tonnes in 2019, below the guidance of 40-45 thousand tonnes. This was driven by a difficult geological condition, restricting mining to low-grade areas.

Share Price Performance
 
Daily Chart as at January-31-20, before the market closed (Source: Thomson Reuters)

Kaz Minerals PLC shares were trading at GBX 439.20 at the time of writing before the market close (at 3:00 PM GMT) on 31st January 2020 and were down by 4.522% versus the previous day closing price. Stock 52 weeks High and Low are GBX 745.45/GBX 375.30. The group’s stock is reflecting the higher volatility as against the benchmark index based on the company’s beta of 2.68.

Valuation Methodology

*Peers: Glencore PLC, Anglo American PLC, Antofagasta PLC, and Central Asia Metals PLC

Conclusion
Full-year gold production increased by 10 per cent to 201.5 koz against the previous year, driven by a high grade at Bozshakol and Bozymchak. In the fourth quarter of 2019, the company delivered robust operational results. This strong result shows the open pit assets in Kazakhstan region and attained record levels of production. The company is also well-positioned to deliver 2019 full-year copper production results in line with guidance. The gold and copper production year for 2019 full were ahead of guidance, at 201 koz and 311 kt respectively. The new credit facility will broaden the company’s debt portfolio and boost the liquidity. It will help the group to develop a Kazakhstan based Aktogay expansion project, which is expected to start production in the year 2021.

Also, the group has industry-leading EBITDA and Net Margin of 50.8%, and 21.6%, respectively, whereas the industry median stood at 30.6% and 6.8%, respectively. The group's Return on Capital Employed stood at 16.1% against the industry median of 4.1%, which indicates that group has relatively higher headroom to plough back its profits into production assets or could return back to shareholders in the form dividends.

Also, at the current trading level, the 14-day, 9-day Relative Strength Index is hovering in a neutral zone and tending up, which reflects buying interest is increasing. Also, at the current level, the stock is trading slightly above the middle- Bollinger Band®, which reflects bend towards positive mode.

Based on the decent prospects, and supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 437.74 (as on 31st January 2020, before the market close at GMT 4:15 PM) with a lower double digit-upside potential based on 4.40x NTM Price/Cash Flow (approx.) on FY20E cash flow per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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